Canada’s Outlook Weakens for 2014
Interview by Rachel Duran
Editor’s Note: This interview was conducted May 6, 2014. For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.
Severe winter weather in the U.S. Northeast, and the slow growth in the U.S. housing market and vehicle sales, has Canadian economists revising their economic outlook for 2014.
The Conference Board of Canada has downgraded its forecast for real GDP growth from 2.3 percent to 2.1 percent. However, the 2015 forecast remains intact at 2.6 percent real GDP growth.
The Atlantic Provinces in Canada, with the exception of Newfoundland and Labrador, have experienced moderate growth. Billions of dollars in construction projects have been invested in Newfoundland and Labrador. The Conference Board of Canada forecasts as the projects near completion in the province, the economy will experience weaker growth.
Marie-Christine Bernard, the associate director of the provincial forecast, Conference Board of Canada, weighs in as to the bumpy road ahead in Canada’s near term, and the anticipated increases in the economy in 2015.
Rachel Duran: What is the status of the Canadian economy as we approach the second half of the year?
Marie-Christine Bernard: The national outlook for Canada for this year is not as positive as we first expected. We have revised growth from 2.3 percent in our winter 2014 Canadian Outlook to 2.1 percent.
Employment figures at the beginning of 2014 were very disappointing. There is not much job creation in Canada, except maybe in Alberta. This factor is behind moderate increases in consumer demand.
What’s more, at the start of 2014, Statistics Canada released an investment intensions survey. The results were disappointing. Investment will not increasing in 2014. We knew there was some weakness in the resource sector, particularly in the mining sector, where most metal prices went down in 2013.
There are also the usual economic factors. For example, on the government side, restrained public spending is holding back growth. The weakness in job creation results in moderate consumer demand.
For these reasons, we forecast weaker growth in Canada in 2014. Our outlook for 2015 remains intact. We believe the economy will bounce back. We will see stronger real GDP growth of 2.6 percent for Canada in 2015, which will help make up for some of the losses we are seeing in 2014.
Duran: What is behind the struggling economy?
Bernard: We know some of it is associated with the severe winter weather that we saw in the U.S. Northeast, which had an impact on the U.S. economy in terms of growth. We also saw U.S. home sales slow, vehicle sales slow, and housing starts slow. Some of the same factors affected Canada.
There is still uncertainty in the global economy, which is affecting investment intentions.
Duran: How do the Atlantic Provinces factor in the national economy?
Bernard: Except for Newfoundland and Labrador, the other Atlantic Provinces saw modest economic growth in 2013.
Newfoundland and Labrador have several makeup projects underway in the oil sector, and also an expansion in hydroelectricity generation. Billions of dollars are being invested right now.
However, as with any construction projects, you get a boom when projects are under construction, and when the projects are near completion. And before the projects start producing we see weaker economic growth. That will be the case for Newfoundland and Labrador in 2014 and 2015.
In 2013, there was a lot of investment taking place. Under development in Newfoundland and Labrador is a processing facility for the Voisey’s Bay nickel mine, which is a large project worth several billion dollars of investment over several years. The project is near completion and will soon begin production. It will give a boost to manufacturing, but we will also see a decline in the construction sector.
Newfoundland and Labrador have also been hit by weaker prices for iron ore and nickel. So we won’t see much growth in the mining industry.
With some of the construction projects nearing completion we will see weaker growth in employment. This is why for Newfoundland and Labrador we have real GDP at 1.3 percent in 2014; and .1 percent in 2015.
Moving to the small province of Prince Edward Island, its size creates an overall volatile GDP. It grew to 1.4 percent in 2013, and we expect the same type of grow, at a similar pace of 1.3 percent for 2014, and a much stronger 2.4 percent for 2015.
Because Prince Edward Island is a small economy, construction projects can influence growth.
During the last few years, we have seen an increase in population growth on the island, especially international immigration. The international immigration is leveling off so we see less activity in the residential construction sector, which will pull down construction growth.
There will be a pickup in PEI’s economy in 2015, with acceleration in construction activities. There is also strong growth in manufacturing; they are doing quite well. It has been strong for the last several years and that will continue as the province continues to gain expertise in a few niche markets, such as with aerospace and pharmaceuticals.
Duran: What is the status of the economies in Nova Scotia and New Brunswick?
Bernard: Both Nova Scotia and New Brunswick have had difficulty in the last few years. They have not seen much economic growth. Labor markets have had difficulty generating jobs, especially in New Brunswick. This province has not been able to generate new jobs in the last four years. There was no economic growth in 2013; and the economy declined in 2012.
However, the future looks positive for New Brunswick. There will be a gradual increase in overall economic growth. We forecast the economy to advance by 1.1 percent in 2014.
One of the factors that will help the economy get back on its feet is the positive growth in terms of construction, which is a sector that has been hit hard. There will also be positive growth in the service sector.
We have seen job creation in New Brunswick improve in the last few months. It looks like labor markets are turning around, which will help consumer demand in some of the service sector categories.
Things will still be difficult for most goods producing industries.
Except for the construction sector, we will not see much growth in the manufacturing sector, even though the United States’ economy is doing better.
Also in New Brunswick, things are still difficult in the food processing industry; plants are still closing, which will affect the performance of the manufacturing sector.
What’s more, some mines in the province’s mining sector are shutting down. New Brunswick is also a leading producer of potash, and prospects do not look that good in the potash industry. We do not expect growth in the industry until 2015.
In 2015, we will get a boost from additional production of potash. So the economy is expected to advance by 2 percent in real terms in New Brunswick.
Duran: Does the economy of Nova Scotia look similar to New Brunswick’s economy?
Bernard: The economy has also been difficult for Nova Scotia. The province only grew by 0.8 percent in 2013. Labor markets have not been creating a lot of jobs. Things have been difficult for the manufacturing sector, and the mining sector. The service sector also felt the weakness in labor markets.
The government of Nova Scotia is also running a fairly important deficit so they are restraining program spending in the province. There is not much growth coming from the public sector.
However, things are looking up for the province, where the economy is expected to advance to 2.3 percent in 2014, and to 2.5 percent in 2015.
Some of the growth will come from new natural gas production, which just started in the province, and which will give a boost to the mining sector.
Nova Scotia won a major contract from the Canadian Department of National Defence to build the nation’s combat ships. The project will get underway in 2015 and will lift manufacturing output and employment in the province, which will help the province get back on its feet.
Right now, however, the economies of New Brunswick and Nova Scotia are weak.
Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by emailing firstname.lastname@example.org. The Conference Board of Canada is the foremost independent, not-for-profit, applied research organization in Canada. Visit the organization at www.conferenceboard.ca.
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